If you own an investment property in Sydney and have been considering selling, 2026 could be a pivotal year for your decision-making. Changes to capital gains tax (CGT) rules are firmly back on the political agenda, with a Senate inquiry currently examining the 50% CGT discount that investors have relied on for over two decades.
Whether these proposed changes will actually come into effect remains to be seen, but understanding how CGT works—and what might be on the horizon—is essential for any investor planning their next move.
Understanding the CGT Basics
Capital gains tax isn’t technically a separate tax—it’s the tax you pay on the profit when you sell an asset for more than you paid for it. When you sell your investment property, any capital gain is added to your taxable income for that year and taxed at your marginal tax rate.
Here’s an important detail many investors overlook: CGT is triggered on the contract date, not settlement. This means if you sign contracts on 28 June and settle in August, that gain hits this financial year’s tax return, not next year’s. Strategic investors use this timing to their advantage.
The 50% CGT Discount: How It Currently Works
If you’ve held your investment property for at least 12 months, you’re eligible for the 50% CGT discount. This is one of the most valuable tax concessions available to property investors.
Here’s how it works in practice: Let’s say you bought an investment property in Paddington for $800,000 and sold it 5 years later for $1.2 million. Your capital gain would be $400,000. With the 50% discount, only $200,000 of that gain is added to your taxable income and taxed at your marginal rate.
Without the discount, the full $400,000 would be added to your income. For many investors, this discount significantly reduces their tax liability when selling.
The important point to remember is that the 12-month clock starts ticking from your contract date of purchase, not settlement.
What’s Happening with the Senate Inquiry?
In November 2025, the Greens successfully secured a Senate inquiry into the CGT discount, with support from the Coalition. This inquiry is examining whether the current 50% discount is contributing to housing affordability issues and intergenerational inequality.
The inquiry is investigating several key questions:
- How much the CGT discount costs in forgone revenue each year
- Who benefits most from the discount
- Whether it encourages speculative investment in housing
- The relationship between the CGT discount and house price growth
- Potential reforms or changes to the current system
The inquiry is due to report its findings by 17 March 2026. While this doesn’t mean changes are certain, it does mean the issue is under serious scrutiny.
The Proposed Changes: 50% to 25% Discount
One of the key proposals being discussed is reducing the CGT discount from 50% to 25%. This isn’t new—it was previously proposed but not implemented. However, with renewed political focus on housing affordability, it’s back on the table.
Let’s look at how this change would impact investors using the same example from earlier:
Under the Current 50% Discount:
- Purchase price: $800,000
- Sale price: $1,200,000
- Capital gain: $400,000
- Discounted gain (50%): $200,000 added to taxable income
Under a Proposed 25% Discount:
- Purchase price: $800,000
- Sale price: $1,200,000
- Capital gain: $400,000
- Discounted gain (25%): $300,000 added to taxable income
The difference is an additional $100,000 in taxable income. The actual tax you would pay depends on your marginal tax rate, but for many investors, this represents a significantly higher tax bill.
It’s worth noting that any changes could likely include “grandfathering” provisions, meaning they might only apply to properties purchased or sold after a certain date. However, the exact details would depend on how any legislation is drafted.
Strategic Timing Considerations for 2026
With the Senate inquiry reporting in mid-March and ongoing political discussion about CGT reform, timing becomes an important consideration for investors thinking about selling.
Here are a few factors to think about:
The Financial Year You Sell Matters
The year you sell can dramatically impact your CGT liability. If you’re approaching retirement, taking a career break, or expecting a lower-income year, these could be opportune times to sell because your marginal tax rate will be lower.
Political and Legislative Timeline
Even if changes are recommended by the Senate inquiry, they would still need to pass through Parliament. This process takes time, and any changes would likely be announced well in advance. That said, staying informed about developments is important if you’re considering selling in the near to medium term.
Market Conditions
While tax considerations are important, they shouldn’t be the only factor driving your decision. The state of the property market, your personal financial situation, and your overall investment strategy all play crucial roles.
The Six-Year Rule: A Lesser-Known Concession
While we’re discussing CGT, it’s worth briefly mentioning the six-year rule—a valuable concession that many investors don’t fully understand.
If you previously lived in your investment property as your main residence, you may be able to claim a full or partial CGT exemption when you sell. The six-year rule allows you to treat a former home as your main residence for up to six years while you’re renting it out, provided you don’t nominate another property as your main residence during that time.
This can significantly reduce—or even eliminate—your CGT liability. However, the rules around this are complex, and you should speak with your accountant to determine if you’re eligible and how it applies to your specific situation.
Maximising Your Cost Base
Best to contact your accountant to discuss maximising your cost base, it’s worth understanding that every dollar you add to your property’s cost base reduces your capital gain.
Your cost base can include:
- The original purchase price
- Stamp duty and legal fees from the purchase
- Major renovations and capital improvements (not routine maintenance)
- Legal fees, agent commissions, and marketing costs when selling
- Capital works expenses like structural improvements or significant upgrades
What’s the difference between improvements and maintenance? That kitchen renovation or bathroom upgrade is a capital improvement. Repainting in the same colour or replacing a broken appliance is maintenance and doesn’t count.
This is where good record-keeping becomes essential. Keep receipts and documentation for all eligible expenses throughout your ownership of the property.
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What This Means for Your Investment Strategy
If you’re an investor who has been contemplating selling your property, the current political climate adds another dimension to your decision-making process.
However, it’s important to keep perspective. CGT considerations should inform your decisions, but they shouldn’t drive them entirely. Your personal financial goals, the property’s performance, market conditions, and your broader investment strategy are all equally important factors.
The key is to be informed and to seek professional advice tailored to your specific circumstances.
Getting Professional Advice
Every investor’s situation is unique. Your income level, other investments, how long you’ve held the property, and your future plans all impact your optimal CGT strategy.
We strongly recommend speaking with a qualified accountant or tax professional before making major decisions. They can help you understand your specific tax position and explore legitimate strategies that might be available to you.
At Local Agency Co., we can offer market intelligence and insights on timing your sale to achieve the best possible result. Our 20+ years of experience in the Sydney market means we understand the nuances of selling investment properties and can work with you and your professional advisers to develop the right strategy.
Planning Your Sale in 2026
If you’re considering selling your investment property in 2026, now is the time to start planning. This doesn’t necessarily mean you need to rush to market, but it does mean getting informed and seeking the right advice.
Key steps to consider:
- Speak with your accountant about your current CGT position
- Get a market appraisal to understand your property’s current value
- Review your overall investment strategy and financial goals
- Stay informed about any legislative developments
- Consider the broader market conditions in your area
The 17 March 2026 Senate inquiry report will provide more clarity on potential changes, but even without changes, understanding your CGT position is essential for making informed decisions about your investment property.
Want to Discuss Your Options?
If you’re thinking about selling your investment property in 2026, contact Local Agency Co. to speak with one of our experienced property experts. We can help you understand current market conditions, discuss the best timing for your sale, and work with you to develop a tailored strategy that aligns with your goals.
We can certainly help you navigate the property market and position your sale for the best possible outcome. With over 20 years of experience managing and selling investment properties across the Eastern Suburbs, and the Lower North Shore, we understand what it takes to achieve strong results while minimising stress.
Give us a call to discuss how we can make the most informed decision about your investment property in 2026.
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